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Danes warn Saxo on CFDs

Adele Ferguson and Ben Butler

DANISH regulators have cracked down on Saxo Bank, which provided the online contracts-for-difference trading product sold by collapsed broker Sonray, ordering it to tell customers more about the risks of CFDs.

Saxo Bank, whose CFD platform is also used by many other Australian financial groups, has also been ordered to hire an independent auditor to investigate allegations of ''front running'' and strengthen its anti-money-laundering capabilities.

The bank has until August 15 to comply with the Danish Financial Services Authority's orders, set out in a report released last Thursday by the FSA following an investigation last year.

The Danish FSA action comes after the collapse of Sonray, one of Saxo Bank's biggest Australian distributors, amid allegations by the corporate regulator that founders Scott Murray and Russell Johnson used ''fictitious client accounts'' to make up to $30 million in unauthorised trades over four years.

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''Retail investors … should be warned very specifically as to the risks of the products that Saxo Bank is offering,'' Danish FSA director of communications Søren Møller Christensen told BusinessDay. ''We have given them directions that are legally binding as to how they should improve their procedures in relation to customer protection.''

A spokeswoman for Saxo said the bank had taken ''cognisance'' of the FSA's orders and would comply ''expediently''.

Saxo was at the centre of Sonray's fictitious trades, with the Australian Securities and Investments Commission saying in an affidavit it was ''highly likely'' Mr Murray would be needed to help ASIC investigate complex client accounts ''intertwined'' with the bank.

Separate to Sonray's collapse, ASIC has been monitoring the Saxo platform model for more than six months. It is believed that ASIC visited Saxo's Sydney office last year to better understand how the white-label software model works. Saxo began selling products directly to retail investors more than six years ago. However, Saxo did not have a financial services licence and in 2004 had to terminate all its Australian retail clients and pass the accounts to two Australian operators, Sonray and Tricom.

Tricom, now known as Stonebridge, almost brought the ASX to its knees in January 2008 when ANZ and Merrill Lynch seized its $1.5 billion securities lending book.

Kinetic, Commodity Broking Services and Halifax also use the Saxo platform.

Directors at Kinetic were unavailable for comment and Halifax could not be reached last night. But Commodity Broking Services' Jonathan Barratt said he was not concerned by the Danish FSA's findings and said he would continue to use the Saxo platform.